A Few Thoughts on the Fiscal Cliff – Here’s My Prediction

I read the news for about an hour this morning, taking in everything I could read on the status of negotiations regarding the fiscal cliff. My up front disclaimer is that I’m chiefly concerned with theology and ethics, not government, but I really enjoy reading about policy. Nevertheless, as a Christian and a pastor my chief concern is that we live out our faith in Jesus Christ, and bear witness to the leaders of the nation in which we live – especially regarding God’s special concern for the poor and vulnerable . I have just a few disorganized thoughts on the fiscal cliff:

Obama’s offer was this: $1.6 trillion in tax increases from wealthy Americans. $400 billion in spending cuts to go along with the $1 trillion dollars in spending cuts that Obama has already signed into law.

Republicans are not happy. I think the best explanation I’ve read of the reason why they are so upset comes from Ezra Klein. He says that Obama learned a thing or two from his first term and this time the president is refusing to negotiate with himself. R’s are upset less at his actual proposal and more that the president didn’t absolutely botch this like he did nearly every early agenda item in his first term.

Obama, meanwhile, is doing exactly what he ought to do: take his case to the people. It’s a winning issue for him, and a loser for congressional/senate R’s. An ABCNews poll says 66% of the country favors tax hikes on those who make more than $250,000 a year.

I’ve seen an alarming lack of acknowledgement from both sides that defense spending is out of control. Just a very modest cutback in defense budgets – helped by the ending of 2 wars – would do more to stave off growing deficits than any cutting in social programs.

It’s important to remember as we call them entitlements, that by and large those who are receiving benefits such as unemployment, social security, Medicare, Medicaid, and in many cases welfare have paid into those programs, sometimes for their entire adult life. We often erroneously call them “handouts,” but these are programs people have already paid into. My parents, now retired and living mostly on social security and the Kansas Public Employee Retirement System, paid into those two systems for 4.5 decades. It’s not a handout when they worked for that benefit and paid into it faithfully for years.

NYTimes ran a huge 3 page story today on taxes. The headline is: “Complaints Aside, Most Face Lower Tax Burden Than in 1980.” The idea that the tax burden is growing out of control is fallacious.

The income disparity between rich and poor continues to be a huge concern for the society at large. According to U.S. News – the top 10 percent hold 75% of the wealth in our society, while the bottom 90% has only a quarter of the nation’s wealth. We have the greatest disproportion of wealth since the great depression. Income/Wealth inequality destabilizes societies and wrecks economies.

From an article by Nicolas Kristoff: “Since the 1950s, the top federal income tax rate has fallen from 90 percent or more to 35 percent. Capital gains tax rates have been cut by more than half since the late 1970s. Financial tycoons now often pay a lower tax rate than their secretaries. All this has coincided with the decline of some public services and the emergence of staggering levels of inequality (granted, other factors are also at work) such that the top 1 percent of Americans now have greater collective net worth than the entire bottom 90 percent.

Raise taxes on those making $250,000 or more by just a few percentage points. Raise taxes on those making upwards of $350,000 a year by a lot. Close every tax loophole possible for everyone in that 350K+ category. Most importantly, allow investment dividends to be taxed as ordinary income.

Cut defense spending by 2-4% over ten years.

Scale back spending by the federal government including spending for social programs, Medicare and Medicaid.

What’s going to happen? My prediction is that the two sides will not get this done before Jan. 1. They will take the country over the “cliff,” at which point everyone will figure out that it’s not really a cliff. Then they’ll do something retroactively after the new congress is sworn in. Either way it’s a plague on both of their houses. My 9 and 7 year old have more acumen for diplomacy than anyone on either side of the aisle on the hill.

You’re citing Chria Hayes of MSNBC and want your points to be considered credible. Isn’t that like me quoting Limbaugh? I’d love to expand this conversation a bit if you have time but I’m sitting in an Irish pub in Frankfurt. I’ve had some great conversations about our recent election and the so called fiscal cliff. All of which were initiated by my European friends. It’s been an incredible learning experience. Their perspective may really surprise you.

Tim Suttle

Scott, first of all, you suck. Not just because you are in Frankfurt, but because you are in an Irish pub in Frankfurt. Lift a cask ale for me! I’d love to hear what they are talking about over there. How is Germany going to whether the EU recession?

That aside, why are you always the one to cry foul whenever a liberal is cited here 🙂 Christopher Hayes and Rush Limbaugh are not even in the same solar system, I don’t have to tell you that. I don’t trust Hayes much on opinion, but he’s one of the guys who traces back the Koch influence & reports on them. There is a powerful lobby at work here twisting Republican arms on behalf of the uber-rich. It’s an extremely relevant fact.

Scott Stone

It’s a great place to be. I really enjoy Europe and have a special fondness for Germany. Their hospitality is wonderful. I’ve really developed some great relationships here.
Not crying foul about Hayes. My point was he looks through a very particular prism when it comes to politics. You can certainly compare Limbaugh and Hayes. Neither Hayes nor Limbaugh have an appreciation for an alternative view. Limbaugh finds all that is liberal to be evil. Hayes views conservatism with the same contempt. I don’t watch or quioye Fox or MSNBC. That’s how I view Hayres in comparison to El Rushbo.

Scott Stone

Tim,
I really liked your post on the peddlers of fear. I think there are some powerful people who benefit from pushing the fiscal cliff story.
Here is my confusion about this issue. First of all let us look at the two largest components of the sequestration. The Obama tax rates and defense spending. I know there are a variety of other components and triggers that will be inacted if we “go over the cliff” but the ones that will have the greatest impact and the ones most discussed are the two that I’ve mentioned.
How is it that we just had an election and one of he key arguments the president and all of his surrogates made regarding increasing taxes was in reference to how great the economy was during the Clinton era? The president not only correlated the economy of the 90’s with higher tax rates, he boldly said the the growth we had under Clinton was because of those tax rates. The fiscal cliff would bring us back to a tax policy that the democrats have been begging for (a tax policy that I am in favor of by the way.)
If democrats truly believe raising taxes equals a booming economy, which is their argument when they talk about Clinton and his tax policy then by are they so afraid of the cliff?
Also in the sequestration is a massive cut in defense spending, which I am also in favor of. Why now are the democrats so concerned about the lose in defense jobs? They’ve been wanting to cut defense spending for years by as great of a number that is in the sequestration and were never concerned about the damage it would have on the economy because of the lose of jobs. I know the argument on my tax rates point will be that the president is just talking abou raising rates on the rich but that isn’t the argument being made. Democrats are sayin that tax rates, all tax rate were a key component to the economic growth durin that era. The problem with that argument is that the vast amount of money he treasury took in came from the increased rates on he middle class. The increase Obama is looking for is $70b. That’s chump change when you have a $1.1T deficit.
So if Clinton rates gave us happy days, lets go over the cliff.

Scott Stone

Oh and using that 66% of Americans want taxes to go up on th rich poll is one of the more useless polls I’ve ever seen. 66% of all Americans can’t name a Supreme Court judge. They don’t know how many branches of government there are. They can’t name their senator or house member. If we are going to govern and dictate policy by polls then we might as well just throw in the towel now.